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Class 1Booth 42201: The Legal Infrastructure of Business
Controlling Information: Property and Contracts
Randal C. PickerJames Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago773.702.0864/[email protected]
Copyright © 2001-13 Randal C. Picker. All Rights Reserved.
Class Organization
Syllabushttp://picker.uchicago.edu/GSBOnline/GSB
SyllOnline.htm Blog
Read and comment at: http://picker.typepad.com/legalinfrastructure/
Post at: http://www.typepad.com/
April 19, 2023 2
April 19, 2023 3
AP v INS
April 19, 2023 4NYT (24 Dec 1918)
April 19, 2023 5
Starting Questions
Why does this litigation arise? What is going on here?
What is the organization of the news business?
How does AP’s business model differ from INS’s?
April 19, 2023 6
Starting Questions
What is the legal setting for this case?What is the procedural posture of this case?
Does that matter here?What are the relevant statutes?What are the relevant cases?
What are the public policy issues raised by the case?
April 19, 2023 7
Key Allegations
Three1: Bribing employees of AP-member
newspapers2: Inducing members to violate AP bylaws3: Transmitting info from legally-obtained
newspapers
April 19, 2023 8
Why Isn’t this a Contracts Case?
Allegation 1: Bribing EmployeesAllegation was that INS was paying
employee of Cleveland newspaper $5 per week to give it information about Cleveland and non-Cleveland employees
April 19, 2023 9
Why Isn’t this a Contracts Case?
Allegation 2: Members Violating Bylaws“Under complainant’s by-laws, each
member agrees upon assuming membership that news received through complainant’s service is received exclusively for publication in a particular newspaper . . . [and] no other use of it shall be permitted . . . .”
April 19, 2023 10
Why Isn’t this a Contracts Case?
Allegation 3: Free Ride on Purchased NewspapersSuppose each newspaper was enclosed in
a wrapper including the following disclaimer:“The news contained herein is for the sole
benefit of our subscribers and may not be reproduced for commercial use without the express written consent of the AP.”
Legal Framing
StatutesThe 1909 Copyright Act
Key CasesBoard of Trade v. Christie Gain (1905)Sports and General Press Agency, Ltd., v.
“Our Dogs” Publishing Co., Ltd., [1916] 2 K.B. 880
April 19, 2023 11
Board of Trade (1905)
The Key to the Decision“This court held that, apart from certain
special objections that were overruled, plaintiff’s collection of quotations was entitled to the protection of the law; that, like a trade secret, plaintiff might keep to itself the work done at its expense, and did not lose its right by communicating the result to persons,
April 19, 2023 12
Board of Trade (1905)
The Key to the Decisioneven if many, in confidential relations to
itself, under a contract not to make it public; and that strangers should be restrained from getting at the knowledge by inducing a breach of trust.”
Does this differ from AP v. INS?
April 19, 2023 13
Unfair Competition?
Says the Court“The parties are competitors in this field; and,
on fundamental principles, applicable here as elsewhere, when the rights or privileges of the one are liable to conflict with those of the other, each party is under a duty so to conduct its own business as not unnecessarily or unfairly to injure that of the other.”
What does this mean?
April 19, 2023 14
Unfair Competition
Says the Court“Stripped of all disguises, the process
amounts to an unauthorized interference with the normal operation of complainant’s legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not;
April 19, 2023 15
Unfair Competition
Says the Court“with special advantage to defendant in the
competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself and a court of equity ought not to hesitate long in characterizing it as unfair competition in business.”
April 19, 2023 16
One More
Says the Court“It has all the attributes of property
necessary for determining that a misappropriation of it by a competitor is unfair competition because contrary to good conscience.”
April 19, 2023 17
Justice Holmes Dissenting
The Holmes Dissent (Joined by McKenna)What is Holmes worried about?Could INS modify its business practices to
solve his problems?What would that mean for AP?
April 19, 2023 18
Justice Brandeis Dissenting
The Brandeis DissentHe disagrees with the Court’s resultWhy?
April 19, 2023 19
What should be the scope of new market rights?
Brandeis on New Markets“He who follows the pioneer into a new
market, or who engages in the manufacture of an article newly introduced by another, seeks profits due largely to the labor and expense of the first adventurer; but the law sanctions, indeed encourages, the pursuit.”
Is this right? Make sense?
April 19, 2023 20
Should the AP be treated as a public utility?
Brandeis again:“If a Legislature concluded (as at least one
court has held, New York and Chicago Grain and Stock Exchange v. Board of Trade, 19 N.E. 855) that under certain circumstances news-gathering is a business affected with a public interest; it might declare that, in such cases, news should be protected against appropriation,
April 19, 2023 21
Should the AP be treated as a public utility?
Brandeis again:“only if the gatherer assumed the obligation
of supplying it at reasonable rates and without discrimination, to all papers which applied therefor. If legislators reached that conclusion, they would probably go further, and prescribe the conditions under which and the extent to which the protection should be afforded;
April 19, 2023 22
Should the AP be treated as a public utility?
Brandeis again:“and they might also provide the
administrative machinery necessary for insuring to the public, the press, and the news agencies, full enjoyment of the rights so conferred.”
April 19, 2023 23
Senate Bill No. 1728, 48th Cong.
The bill provides: “That any daily or weekly newspaper, or any
association of daily or weekly newspapers, published in the United States or any of the territories thereof, shall have the sole right to print, issue, and sell, for the term of eight hours, dating from the hour of going to press, the contents of said daily or weekly newspaper, or the collected news of said newspaper association, exceeding one hundred words.
What should we make of this?
April 19, 2023 24
April 19, 2023 25
Production of Property: The Great American Novel
SupplyNovelist-wannabe contemplates writing
book. It will cost her $12 to do soOnce written, each copy of the book can be
produced for $1 Demand
Two consumers: One would value the book at 10, the second at 5
April 19, 2023 26
What happens?
Possibilities with Single PricePrivate Values
Price of 10, sells one copy at total cost of 13Price of 5, sells two copies, for revenues of
10 and costs of 14The book will not be produced
FC = 12, MC = 1VC1 = 10, VC2 = 5
April 19, 2023 27
What happens?
Social ValuesOne copy: Cost of 13, value of 10, net loss
of 3Two copies: cost of 14, value of 15, social
gain of 1Two copies should be produced, but won’t
be Price Discrimination Would Solve
Selling in Separate Markets
HypoSame cost structure as before: fixed costs
$12, per copy cost of $1Two markets separated by time and distance
Consumer in East values at $10Consumer in West values at $5
Monopolist and can sell in both markets What happens?
April 19, 2023 28
Selling in Separate Markets
AnswerSame hypo as beforeM should sell at $10 in the East and $5 in
the West and product will be producedSocial welfare rises by 1 ($15 in value
created against $14 in costs)
April 19, 2023 29
Entry in the West
Hypo AgainSuppose that distribution in the East makes
possible entry in the WestEntrant faces zero fixed costs but same
marginal costPricing
M charges $10 in East; assume for now that both M and E charge $5 in West
What happens?April 19, 2023 30
Entry in the West
Hypo AgainSuppose that distribution in the East makes
possible entry in the WestEntrant faces zero fixed costs but same
marginal costPricing
M charges $10 in East; sssume for now that both M and E charge $5 in West
What happens?April 19, 2023 31
Entry in the West
AnswerM sells in East and collects $10M sells 50% of the time in West and collects
$2.50 in expectationE sells 50% of the time in West and also
collects $2.50 on averageM now incurs expected costs of 12 + 1
+ .5*1 = 13.50 against expected revenues of 12.50
April 19, 2023 32
Entry in the West
ConclusionE’s free-riding entry in the West means that
M can’t make the product profitablyM won’t produce, so E can’t free ride
Extra social value lost Is this AP v. INS?
April 19, 2023 33
April 19, 2023 34
Yelp
The Questions in Yelp
What is the behavior that the plaintiffs are complaining about?
What is their legal theory about why that behavior should give rise to liability?
What is the court’s view of that? What should Yelp do going forward? The
plaintiffs?
April 19, 2023 36
April 19, 2023 37
Contracts
What Products are Offered for Sale in ProCD?
PossibilitiesA consumer version of the database?A commercial version of the database?A franchise version of the database?
April 19, 2023 38
The Contract in ProCD
When was the contract formed? Who was the contract between? On what terms?
April 19, 2023 39
Going Shopping (and Contracting?)
www.barnesandnoble.com
April 19, 2023 40
April 19, 2023 41Time Magazine (16 Jan 1995)
April 19, 2023 42
Sports Statistics
April 19, 2023 43Time Magazine (16 Jan 1995)
April 19, 2023 44
“For those who want their information delivered in a trickle, rather than in a stream, consider Motorola’s Sports Trax, a pager that feels like a cross between a radio and the sports page of a daily newspaper. Pick your favorite baseball team, and the clever pager ‘trax’ it like a die-hard fan, transmitting pitch-by-pitch updates of every game and displaying the action on a calculator-like screen in real time all season long -- if there ever is another season.”
Time Magazine (16 Jan 1995)
What are the legal risks posed by this product?
April 19, 2023 45NYT (1 Oct 1996)
Framing of NBA v. Motorola (CA2, 1997)
Says the Court“The crux of the dispute concerns the extent
to which a state law ‘hot-news’ misappropriation claim based on International News Service v. Associated Press, 248 U.S. 215 (1918) (‘INS’), survives preemption by the federal Copyright Act and whether the NBA’s claim fits within the surviving INS-type claims.”
April 19, 2023 46
Framing of NBA v. Motorola (CA2, 1997)
Says the Court“We hold that a narrow ‘hot-news’ exception
does survive preemption. However, we also hold that appellants’ transmission of ‘real-time’ NBA game scores and information tabulated from television and radio broadcasts of games in progress does not constitute a misappropriation of ‘hot news’ that is the property of the NBA.”
April 19, 2023 47
Test in NBA v. Motorola
Says the Court“We hold that the surviving ‘hot-news’ INS-
like claim is limited to cases where: (i) a plaintiff generates or gathers information at a cost; (ii) the information is time-sensitive; (iii) a defendant's use of the information constitutes free riding on the plaintiff's efforts; (iv) the defendant is in direct competition with a product or service offered by the plaintiffs;
April 19, 2023 48
Test in NBA v. Motorola
Says the Courtand (v) the ability of other parties to free-
ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened. We conclude that SportsTrax does not meet that test.”
Why not?
April 19, 2023 49
April 19, 2023 50
TheFlyontheWall.com
April 19, 2023 51
FRCP 7: Pleadings Allowed
(a) Pleadings. Only these pleadings are allowed:(1) a complaint;(2) an answer to a complaint;(3) an answer to a counterclaim designated
as a counterclaim;(4) an answer to a crossclaim;(5) a third-party complaint;
April 19, 2023 52
FRCP 7: Pleadings Allowed
(6) an answer to a third-party complaint; and
(7) if the court orders one, a reply to an answer.
April 19, 2023 53
FRCP 8: General Rules of Pleading
(a) Claim for Relief. A pleading that states a claim for relief must contain:(1) a short and plain statement of the
grounds for the court’s jurisdiction, unless the court already has jurisdiction and the claim needs no new jurisdictional support;
(2) a short and plain statement of the claim showing that the pleader is entitled to relief; and
April 19, 2023 54
FRCP 8
(3) a demand for the relief sought, which may include relief in the alternative or different types of relief.
April 19, 2023 55
April 19, 2023 56
SCS
Fly on the Wall Complaint (26 June ‘06)
April 19, 2023 57
SCS
Fly on the Wall Complaint (26 June ‘06)
“Without the slightest pretext of generating original equity research on its own, Fly systematically and impermissibly accesses the Firms’ proprietary equity research and—free riding on these significant research efforts—rushes to market with the intent and effect of undermining the Firms’ enormous investments in providing clients and other authorized recipients with exclusive and time-sensitive financial market analysis.”
April 19, 2023 58
SCS
Fly on the Wall Complaint (26 June ‘06)
“For a time, Fly reproduced these reports verbatim. These blatant acts of misappropriation and copyright infringement warrant both injunctive relief and damages.”
April 19, 2023 59
SCS
Fly on the Wall Complaint (26 June ‘06)
April 19, 2023 60
SCS
Fly on the Wall Complaint (26 June ‘06)
April 19, 2023 61
SCS
Fly on the Wall Complaint (26 June ‘06)
“Specifically, Fly’s practice of obtaining and competitively posting on or streaming via its website the substance of the Firms’ equity research reports is unlawful because:(i)the Firms generate the analysis contained in their reports at considerable cost and expense;(ii)the value of the analysis is highly time-sensitive;”
April 19, 2023 62
SCS
Fly on the Wall Complaint (26 June ‘06)
“(iii) Fly’s use of the analysis constitutes free riding on the Firms’ costly efforts to generate it;(iv) Fly’s use of the analysis is in direct competition with the analysis offered by the Firms; and(v) the ability of other parties to free ride on the Firms’ efforts will substantially threaten the Firms’ incentive to continue to invest in their research activities at the same level.”
April 19, 2023 63
SCS
Fly on the Wall Complaint (26 June ‘06)
April 19, 2023 64
SCS
Fly on the Wall Complaint (26 June ‘06)
April 19, 2023 65Barclays Capital, 650 F.3d 879 (2nd Cir. 2011)
“We conclude that under principles that are well established in this Circuit, the plaintiffs’ claim against the defendant for ‘hot news’ misappropriation of the plaintiff financial firms’ recommendations to clients and prospective clients as to trading in corporate securities is preempted by federal copyright law.”
